Ethics & International Affairs Volume 18.2 (Fall 2004): Articles: International Financial Institutions and Financial Accountability [Full Text]

Sep 21, 2004

ABSTRACT While useful proposals to reform International Financial Institutions (IFIs) have been widely discussed, the lack of meaningful financial accountability has received little attention. Considering the substantial damage done by IFIs, this is surprising both from an ethical and an economist’s point of view.

In a market economy anyone must face the economic consequences of their actions and decisions. If consultants give advice negligently or without obeying minimal professional standards, they have to pay compensation for the damage they have caused. National liability and tort laws serve the purpose of compensating those suffering unlawful damages and of deterring such behavior. By contrast, tortious damage caused by IFIs must be paid by IFIs’ borrowers, including many of the world’s poorest people. IFIs may even gain financially from their own negligence by extending new loans necessary to repair damages done by their prior loans. One failed adjustment program calls for the next. This mechanism makes IFI-flops generate IFI-jobs and additional income. This perverted incentive system rewarding errors, negligence, and even violations of the very constitutions of IFIs is absolutely at odds with the principles on which Western market economies rest. It must be brought to an end.

This essay presents the idea of financial accountability, showing how easily reforms making IFIs financially accountable could be implemented. Moreover, embracing financial accountability would bring IFI operations closer to the intentions of their founders, who wanted IFIs subject to the basic legal and economic concepts of financial accountability not exempt from it. The market mechanism and its beneficial incentive system must finally be brought to IFIs.

You may also like

AUG 2, 2022 Journal

Ethics & International Affairs Volume 36.2 (Summer 2022)

The editors of Ethics & International Affairs are pleased to present the Summer 2022 issue of the journal! The highlight of this issue is a roundtable organized ...

MAR 15, 2022 Journal

Ethics & International Affairs Volume 36.1 (Spring 2022)

The highlight of this issue is a roundtable organized by Jesse Kirkpatrick on moral injury, trauma, and war, featuring contributions by Jesse Kirkpatrick, Daniel Rothenberg, ...

JAN 4, 2022 Journal

Ethics & International Affairs Volume 35.4 (Winter 2021)

The issue features a book symposium organized by Michael Blake on Anna Stilz's "Territorial Sovereignty," with contributions from Adom Getachew; Christopher Heath Wellman; and Michael ...

Not translated

This content has not yet been translated into your language. You can request a translation by clicking the button below.

Request Translation